SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the Quarterly Period Ended September 30, 1998
Commission File Number 1-9608
NEWELL CO.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3514169
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Newell Center
29 East Stephenson Street
Freeport, Illinois 61032-0943
(Address of principal executive offices)
(Zip Code)
(815) 235-4171
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Number of shares of Common Stock outstanding
as of October 27, 1998: 162,648,357
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
NEWELL CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ------------------------------
1998 1997* 1998 1997*
---------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
Net sales $ 957,034 $ 925,698 $ 2,650,263 $ 2,395,037
Cost of products sold 631,736 627,076 1,786,640 1,631,253
---------- ----------- ------------ --------------
GROSS INCOME 325,298 298,622 863,623 763,784
Selling, general and
administrative expenses 133,879 126,769 404,882 365,123
Trade names and goodwill
amortization and other 10,252 9,504 40,502 22,872
---------- ----------- ------------ --------------
OPERATING INCOME 181,167 162,349 418,239 375,789
Non-operating expenses (income):
Interest expense 19,982 25,083 43,966 54,363
Other, net (32,918) (7,186) (213,273) (12,862)
---------- ----------- ------------ --------------
Net non-operating
expenses (income) (12,936) 17,897 (169,307) 41,501
---------- ----------- ------------ --------------
INCOME BEFORE INCOME
TAXES 194,103 144,452 587,546 334,288
Income taxes 94,937 57,195 250,740 132,373
---------- ----------- ------------ --------------
NET INCOME $ 99,166 $ 87,257 $ 336,806 $ 201,915
========== =========== ============ ==============
Earnings per share:
Basic $ 0.61 $ 0.54 $ 2.07 $ 1.25
Diluted 0.60 0.54 2.02 1.24
Dividends per share $ 0.18 $ 0.16 $ 0.54 $ 0.48
Weighted average shares
outstanding:
Basic 162,623 162,206 162,501 162,141
Diluted 173,295 162,846 173,052 162,781
See notes to consolidated financial statements.
*Restated for the merger with Calphalon Corporation on May 7, 1998,
which was accounted for as a pooling of interests.
</TABLE>
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<PAGE>
NEWELL CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
September 30, % of December 31, % of
1998 Total 1997* Total
------------- ------ ------------ ------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 42,443 0.9% $ 36,107 0.9%
Accounts receivable, net 670,193 14.6% 544,375 13.6%
Inventories, net 776,093 16.9% 653,200 16.3%
Deferred income taxes 191,232 4.2% 134,732 3.4%
Prepaid expenses and other 87,409 1.8% 65,280 1.5%
----------- ------ ------------ ------
TOTAL CURRENT ASSETS 1,767,370 38.4% 1,433,694 35.7%
MARKETABLE EQUITY SECURITIES - 0.0% 307,121 7.7%
OTHER LONG-TERM INVESTMENTS 56,412 1.2% 51,020 1.3%
OTHER ASSETS 182,151 4.0% 144,475 3.6%
PROPERTY, PLANT AND
EQUIPMENT, NET 834,486 18.1% 711,325 17.7%
TRADE NAMES & GOODWILL, NET 1,763,299 38.3% 1,364,099 34.0%
------------ ----- ------------ ------
TOTAL ASSETS $ 4,603,718 100.0% $ 4,011,734 100.0%
============ ====== ============ ======
See notes to consolidated financial statements.
*Restated for the merger with Calphalon Corporation on May 7, 1998,
which was accounted for as a pooling of interests.
</TABLE>
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<TABLE>
<CAPTION>
NEWELL CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT.)
(Unaudited, in thousands)
September 30, % of December 31, % of
1998 Total 1997* Total
---------------- --------- ---------------- ---------
<S> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 37,156 0.8% $ 52,636 1.3%
Accounts payable 180,422 3.9% 138,531 3.4%
Accrued compensation 86,234 1.9% 82,676 2.1%
Other accrued liabilities 667,993 14.5% 397,561 9.9%
Income taxes 84,410 1.8% 11,797 0.3%
Current portion of long-term debt 5,460 0.1% 31,278 0.8%
----------- ------- --------- -----
TOTAL CURRENT LIABILITIES 1,061,675 23.0% 714,479 17.8%
LONG-TERM DEBT 912,650 19.8% 786,793 19.6%
OTHER NONCURRENT LIABILITIES 198,040 4.3% 186,673 4.7%
DEFERRED INCOME TAXES 45,039 1.0% 90,216 2.2%
MINORITY INTEREST 783 0.0% 8,352 0.2%
COMPANY-OBLIGATED
MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED
SECURITIES OF A
SUBSIDIARY TRUST 500,000 10.9% 500,000 12.5%
STOCKHOLDERS' EQUITY
Common stock authorized shares,
400.0 million at $1 par value; 162,634 3.5% 162,330 4.0%
Outstanding shares:
1998 162.6 million
1997 162.3 million
Additional paid-in capital 202,395 4.4% 201,045 5.0%
Retained earnings 1,554,118 33.8% 1,305,643 32.6%
Net unrealized gain on securities
available for sale - 0.0% 78,839 2.0%
Cumulative translation adjustment (33,616) (0.7)% (22,636) (0.6)%
----------- ------- ----------- -------
TOTAL STOCKHOLDERS' EQUITY 1,885,531 41.0% 1,725,221 43.0%
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 4,603,718 100.0% $ 4,011,734 100.0%
============ ======= =========== =======
See notes to consolidated financial statements.
*Restated for the merger with Calphalon Corporation on May 7, 1998,
which was accounted for as a pooling of interests.
</TABLE>
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<TABLE>
<CAPTION>
NEWELL CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
For the Nine Months Ended
September 30,
-----------------------------------
1998 1997*
--------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 336,806 $ 201,915
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 110,879 94,263
Deferred income taxes 33,571 30,216
Net (gains) losses on:
Marketable equity securities (115,674) (2,853)
Sale of businesses (388) -
Write-off of intangible
assets and other 4,288 -
Other 1,434 (4,318)
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable (41,675) (36,938)
Inventories (59,918) (40,674)
Other current assets (14,740) 12,206
Accounts payable (16,447) (29,764)
Accrued liabilities and other (121,909) (27,359)
--------------- ---------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 116,227 196,694
--------------- ---------------
INVESTING ACTIVITIES:
Acquisitions, net (419,745) (695,429)
Expenditures for property,
plant and equipment (106,333) (52,259)
Sale of businesses 198,963 -
Sale of marketable
equity securities 378,321 6,389
Disposals of non-current assets
and other (33,454) (26,385)
--------------- ---------------
NET CASH PROVIDED BY
(USED IN) INVESTING
ACTIVITIES 17,752 (767,684)
--------------- ---------------
See notes to consolidated financial statements.
*Restated for the merger with Calphalon Corporation on May 7, 1998,
which was accounted for as a pooling of interests.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NEWELL CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
(Unaudited, in thousands)
For the Nine Months Ended
September 30
----------------------------------
1998 1997*
--------------- --------------
<S> <C> <C>
FINANCING ACTIVITIES:
Proceeds from issuance of debt 439,394 725,802
Payments on notes payable
and long-term debt (480,172) (56,898)
Proceeds from exercised stock
options and other 519 4,098
Cash dividends (87,196) (76,334)
--------------- ---------------
NET CASH PROVIDED BY
(USED IN) FINANCING
ACTIVITIES (127,455) 596,668
--------------- ---------------
Exchange rate effect on cash (188) (9,248)
INCREASE IN CASH AND
CASH EQUIVALENTS 6,336 16,430
Cash and cash equivalents at
beginning of year 36,107 4,363
--------------- ---------------
CASH AND CASH
EQUIVALENTS AT END
OF PERIOD $ 42,443 $ 20,793
=============== ===============
Supplemental cash flow disclosures -
Cash paid during the period for:
Income taxes $ 137,760 $ 97,610
Interest $ 52,794 $ 57,020
See notes to consolidated financial statements.
*Restated for the merger with Calphalon Corporation on May 7, 1998,
which was accounted for as a pooling of interests.
</TABLE>
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<PAGE>
NEWELL CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL INFORMATION
The condensed financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission, and reflect all adjustments
necessary to present a fair statement of the results for the periods
reported, subject to normal recurring year-end adjustments, none of
which is material. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these condensed
financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's latest
Annual Report on Form 10-K.
NOTE 2 - ACQUISITIONS AND DIVESTITURES
On March 5, 1997, the Company purchased Insilco Corporation's Rolodex
business unit ("Rolodex"), a marketer of office products, including
card files, personal organizers and paper punches. Rolodex was
integrated into the Company's Newell Office Product division. On May
30, 1997, the Company acquired Cooper Industries Incorporated's Kirsch
business ("Kirsch"), a manufacturer and distributor of drapery
hardware and custom window coverings in the United States and
international markets. The Kirsch North American operations were
combined with the Newell Window Furnishings division. The Kirsch
European businesses operate as a separate division, Kirsch Window
Fashions Europe. On June 13, 1997, the Company acquired Rubbermaid
Incorporated's office products business, including the ELDON
Registered brand name (now referred to as "Eldon"). Eldon is a
designer, manufacturer and supplier of computer and plastic desk
accessories, resin-based office furniture and storage and organization
products. Eldon was integrated into the Company's Newell Office
Products division. On March 27, 1998, the Company acquired Swish Track
and Pole ("Swish") from Newmond PLC. Swish is a manufacturer and
marketer of decorative and functional window furnishings in Europe and
operates as part of Kirsch Window Fashions Europe. On June 30, 1998,
the Company purchased Panex S.A. Industria e Comercio ("Panex"), a
manufacturer and marketer of aluminum cookware products in Brazil.
Panex operates as part of the Mirro division. On August 31, 1998, the
Company purchased the Gardinia Group ("Gardinia"), a manufacturer and
supplier of window treatments based in Germany. Gardinia operates as
part of the Company's Kirsch Window Fashions Europe division. On September
30, 1998 the Company purchased the rotring Group ("Rotring"), a
manufacturer and supplier of writing instruments, drawing instruments,
art materials and color cosmetic products based in Germany. The writing
and drawing instruments piece of Rotring operates as part of the Company's
Sanford International division. The art materials piece of Rotring operates
as part of the Company's Sanford North America division. The color cosmetic
products piece of Rotring operates as a separate U.S. division, Cosmolab.
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<PAGE>
For these and other minor acquisitions, the Company paid $1,180.6
million in cash and assumed $128.3 million of debt. The transactions
were accounted for as purchases; therefore, results of operations are
included in the accompanying consolidated financial statements since
their respective dates of acquisition. The acquisition costs were
allocated on a preliminary basis to the fair market value of the
assets acquired and liabilities assumed and resulted in trade names
and goodwill of approximately $951.0 million. The final adjustments to
the purchase price allocations are not expected to be material to the
consolidated financial statements. The unaudited consolidated results
of operations for the nine months ended September 30, 1998 and 1997 on
a pro forma basis, as though the Rolodex, Kirsch, Eldon, Swish, Panex,
Gardinia and Rotring businesses had been acquired on January 1, 1997,
are as follows (in millions, except per share amounts):
Nine Months Ended
September 30,
-----------------------------
1998 1997
------------ ------------
Net sales $ 3,047.5 $ 3,069.9
Net income 322.5 179.3
Earnings per share $ 1.98 $ 1.11
(basic)
On May 7, 1998, a subsidiary of the Company merged with Calphalon
Corporation ("Calphalon"), a manufacturer and marketer of gourmet
cookware. The Company issued approximately 3.1 million shares of
common stock for all of the common stock of Calphalon. This
transaction was accounted for as a pooling of interests; therefore,
prior financial statements were restated to reflect this merger.
On August 21, 1998, the Company sold its school supplies and
stationery business. On September 9, 1998, the Company sold its
plastic storage and serveware business. The pre-tax net gain on the
sale of these businesses was $36.8 million, which was primarily offset
by non-deductible goodwill, resulting in a net after-tax gain which was
immaterial. Sales for these businesses were approximately $160 million
in 1997.
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Note 3 Inventories
The components of inventories at the end of each period, net of the
LIFO reserve, were as follows (in millions):
September 30, December 31,
1998 1997
------------- -------------
Materials and $ 150.1 $ 142.8
supplies
Work in process 128.7 109.9
Finished products 497.3 400.5
------------- -------------
$ 776.1 $ 653.2
============= =============
NOTE 4 MARKETABLE EQUITY SECURITIES
Marketable Equity Securities classified as available for sale are
carried at fair value with adjustments to fair value reported
separately, net of tax, as a component of stockholders' equity (and
excluded from earnings). On March 3, 1998, the Company sold all of its
marketable equity securities, which included 7,862,300 shares it held
in The Black & Decker Corporation. The Black & Decker transaction
resulted in net proceeds of approximately $378.3 million and a net
pre-tax gain, after fees and expenses, of approximately $191.5
million. Marketable Equity Securities at December 31, 1997 are
summarized as follows (in millions):
December 31,
1997
------------
Aggregate market value $ 307.1
Aggregate cost 176.8
------------
Unrealized gain $ 130.3
============
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NOTE 5 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at the end of each period consisted of
the following (in millions):
September 30, December 31,
1998 1997
------------- ------------
Land $ 34.5 $ 34.1
Buildings and 350.2 278.6
improvements
Machinery and 955.3 854.9
equipment ------------- -----------
1,340.0 1,167.6
Allowance for (505.5) (456.3)
depreciation ------------- ------------
$ 834.5 $ 711.3
============= ============
NOTE 6 - LONG-TERM DEBT
Long-term debt at the end of each period consisted of the following
(in millions):
September 30, December 31,
1998 1997
------------- ------------
Medium-term notes $ 688.0 $ 263.0
Commercial paper 197.0 517.0
Other long-term 33.2 38.1
debt ------------- ------------
918.2 818.1
Current portion (5.5) (31.3)
------------- ------------
$ 912.7 $ 786.8
============= ============
Commercial paper in the amount of $197.0 million at September 30, 1998
was classified as long-term since it is supported by the 5-year $1.3
billion revolving credit agreement.
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NOTE 7 COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED SECURITIES OF A SUBSIDIARY TRUST OF THE COMPANY
In December 1997, a wholly owned subsidiary trust of the Company
issued 10,000,000 of its 5.25% convertible quarterly income preferred
securities (the "Convertible Preferred Securities"), with a
liquidation preference of $50 per security, to certain institutional
buyers. The Convertible Preferred Securities represent an undivided
beneficial interest in the assets of the trust. Each of the
Convertible Preferred Securities is convertible at the option of the
holder into shares of the Company's Common Stock at the rate of 0.9865
shares of Common Stock for each preferred security (equivalent to
$50.685 per share of Common Stock), subject to adjustment in certain
circumstances. Holders of the Convertible Preferred Securities are
entitled to a quarterly cash distribution at the annual rate of 5.25%
of the $50 liquidation preference commencing March 1, 1998. The
Convertible Preferred Securities are subject to a Company guarantee
and are callable by the Company initially at 103.15% of the
liquidation preference beginning in December 2001 and decreasing over
time to 100% of the liquidation preference beginning in December 2007.
The trust invested the proceeds of this issuance of the Convertible
Preferred Securities in $500 million of the Company's 5.25% Junior
Convertible Subordinated Debentures due 2027 (the "Debentures"). The
Debentures are the sole assets of the trust, mature December 1, 2027,
bear interest at the rate of 5.25%, payable quarterly, commencing
March 1, 1998, and are redeemable by the Company beginning in December
2001. The Company may defer interest payments on the Debentures for a
period not to exceed 20 consecutive quarters during which time
distribution payments on the Convertible Preferred Securities are also
deferred. Under this circumstance, the Company may not declare or pay
any cash distributions with respect to its capital stock or debt
securities that rank PARI PASSU with or junior to the Debentures. The
Company has no current intention to exercise its right to defer
payments of interest on the Debentures.
The Convertible Preferred Securities are reflected as outstanding in
the Company's consolidated financial statements as Company-Obligated
Mandatorily Redeemable Convertible Preferred Securities of a
Subsidiary Trust.
NOTE 8 EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted SFAS No. 128,
"Earnings Per Share." As a result, the Company's reported earnings per
share for 1997 were restated. The impact on previously reported
earnings per share was immaterial. The earnings per share amounts are
computed based on the weighted average monthly number of shares
outstanding during the year. "Basic" earnings per share is calculated
by dividing net income by weighted average shares outstanding.
"Diluted" earnings per share is calculated by dividing net income by
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weighted average shares outstanding, including the assumption of the
exercise and/or conversion of all potentially dilutive securities ("in
the money" stock options and convertible preferred securities). A
reconciliation of the difference between basic and diluted earnings
per share for the first nine months of 1998 is shown below (in
millions, except per share amounts):
<TABLE>
<CAPTION>
Basic Convertible Diluted
Earnings "In the money" Preferred Earnings
Per Share stock options Securities per Share
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net Income $ 336.8 $ 0.0 $ 12.1 $ 348.9
Weighted average
shares outstanding 162.5 0.7 9.9 173.1
Earnings per share $ 2.07 $ 2.02
Basic earnings per share for the first nine months of 1997 was $1.25.
Diluted earnings per share for the first nine months of 1997 was $1.24.
</TABLE>
NOTE 9 COMPREHENSIVE INCOME
In the first quarter of 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." The Company's Comprehensive Income
consists of net income, foreign currency translation adjustments and
unrealized gains on marketable equity securities (if any).
The Company sold its stake in The Black & Decker Corporation during
the first quarter of 1998 and has no other material marketable equity
security position as of September 30, 1998. Therefore, the Company's
Comprehensive Income in the first nine months of 1998 includes, in
addition to net income, only foreign currency translation adjustments,
which were immaterial. The Company's Comprehensive Income in the first
nine months of 1997 included unrealized gains on marketable equity
securities of $33.6 million, offset partially by currency translation
losses of $9.2 million.
The accumulated Other Comprehensive Income balances are summarized as
follows (in millions):
<TABLE>
<CAPTION>
Net Unrealized
Gain on Accumulated
Foreign Securities Other
Currency Available Comprehensive
Translation For Sale (1) Income
--------------- ------------- ----------------
<S> <C> <C> <C>
Balance at December 31, 1997 $ (22.6) $ 78.8 $ 56.2
Change during nine months
ended September 30, 1998 (11.0) (78.8) (89.8)
--------------- --------------- ----------------
Balance at September 30, 1998 $ (33.6) $ 0.0 $ (33.6)
=============== =============== ================
</TABLE>
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(1) On March 3, 1998, the Company sold its stake in The Black & Decker
Corporation and realized a net pre-tax gain of approximately $191.5
million ($116.8 million after taxes). The difference between the $78.8
million after-tax balance at December 31, 1997 and the $116.8 million
after-tax gain recorded in the first quarter of 1998 represents the
appreciation on the shares sold on March 3, 1998 from December 31,
1997 through March 3, 1998.
NOTE 10 INTERIM SEGMENT REPORTING
Effective December 31, 1998, the Company will adopt SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information."
After reviewing the criteria for determining segments of an
enterprise, the Company believes it has three reportable segments
under the reporting requirements: Hardware and Home Furnishings,
Office Products, and Housewares. The Company believes that this
segmentation is appropriate because it organizes its product
categories into these groups when making operating decisions and
assessing performance. The Company Divisions included in each group
also sell primarily to the same retail channel: Hardware and Home
Furnishings (home centers and hardware stores), Office Products
(office superstores and contract stationers), and Housewares (discount
stores and warehouse clubs). Financial statement disclosures regarding
segments will commence with the 1998 10-K Report filing.
NOTE 11 DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS
Effective December 31, 1998, the Company will adopt SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement
Benefits." Management believes that the adoption of this statement
will not be material to the consolidated financial statements.
NOTE 12 ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Effective January 1, 2000, the Company will adopt SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities."
Management believes that the adoption of this statement will not be
material to the consolidated financial statements.
NOTE 13 RECLASSIFICATION OF TRADE NAMES AND GOODWILL AMORTIZATION
The Company began reclassifying the amortization of trade names and
goodwill from non-operating expenses to operating expenses in the
first quarter of 1998. This change required a restatement for all
periods presented.
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NOTE 14 SUBSEQUENT EVENTS
On October 20, 1998, the Company entered into a definitive agreement
to acquire Rubbermaid Incorporated, a leading manufacturer of home,
infant/juvenile, and commercial products through a tax-free exchange of
shares valued at approximately $5.8 billion based on the market price of
the Company's shares on October 20, 1998.
Completion of the acquisition is subject to normal regulatory
approvals and the approval of the Newell and Rubbermaid shareholders.
This transaction is expected to close in the first quarter of 1999.
Sales for Rubbermaid were approximately $2.4 billion in 1997.
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PART I.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
---------------------
The following table sets forth for the periods indicated items from
the Consolidated Statements of Income as a percentage of net sales.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- -------------------------------
1998 1997* 1998 1997*
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 66.0% 67.7% 67.4% 68.1%
-------------- --------------- -------------- --------------
GROSS INCOME 34.0% 32.3% 32.6% 31.9%
Selling, general and
administrative expenses 14.0% 13.7% 15.3% 15.2%
Trade names and goodwill
amortization and other 1.1% 1.1% 1.5% 1.0%
-------------- --------------- -------------- --------------
OPERATING INCOME 18.9% 17.5% 15.8% 15.7%
Non-operating expenses (income):
Interest expense 2.0% 2.7% 1.7% 2.3%
Other, net (3.4)% (0.8)% (8.1)% (0.6)%
-------------- --------------- -------------- --------------
Net non-operating
expenses (income) (1.4)% 1.9% (6.4)% 1.7%
-------------- --------------- -------------- --------------
INCOME BEFORE INCOME
TAXES 20.3% 15.6% 22.2% 14.0%
Income taxes 9.9% 6.2% 9.5% 5.6%
-------------- --------------- -------------- --------------
NET INCOME 10.4% 9.4% 12.7% 8.4%
============== =============== ============== ==============
*Restated for the merger with Calphalon Corporation on May 7, 1998,
which was accounted for as a pooling of interests.
</TABLE>
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THREE MONTHS ENDED SEPTEMBER 30, 1998 VS. THREE MONTHS ENDED SEPTEMBER
30, 1997
Net sales for the third quarter of 1998 were $957.1 million,
representing an increase of $31.4 million or 3.4% from $925.7 million
in the comparable quarter of 1997. The increase in the quarter was
primarily attributable to internal growth of 5% at the Company, which was
primarily due to strong shipments at the Hardware and Home Furnishings
businesses (primarily Intercraft/Burnes picture frames and Levolor and
Newell window treatments). These results were offset partially by the impact
of the divestitures of the Stuart Hall and Newell Plastics businesses. Net
sales for each of the Company's product groups (and the primary
reasons for the increase or decrease) were as follows, in millions:
1998 1997* % change
--------- --------- --------
Hardware & Home $ 439.8 $ 408.2 7.7% (a)
Furnishings
Office Products 266.3 267.8 (0.6)% (b)
Housewares 251.0 249.7 0.5% (c)
--------- ---------
$ 957.1 $ 925.7 3.4%
========= =========
(a) Internal growth** of 9%.
(b) Internal growth of 6% less the impact of the Stuart Hall
divestiture.
(c) Acquisition of Panex, offset by sale of Newell Plastics.
* Restated for the merger with Calphalon Corporation on May 7, 1998,
which was accounted for as a pooling of interests.
** The Company defines internal growth as growth from its core
businesses. A core business is a continuing business owned more than
two years, including minor acquisitions.
Gross income as a percentage of net sales in the third quarter of 1998
was 34.0% or $325.3 million versus 32.3% or $298.6 million in the
comparable quarter of 1997. Gross margins improved in the third
quarter of 1998 as a result of improvements at several of the
Company's core businesses and cost savings related to the integration
of the 1997 acquisitions into existing divisions.
Selling, general and administrative expenses ("SG&A") in the third
quarter of 1998 were 14.0% of net sales or $133.9 million versus 13.7%
or $126.8 million in the comparable quarter of 1997. SG&A as a
percentage of net sales increased in the third quarter of 1998 as a
result of higher than average spending levels at the newly acquired
Panex operation. As this business is integrated, we expect its
spending to fall in line with Newell norms.
The Company has reclassified trade names and goodwill amortization
from non-operating expense to operating expenses for all periods
-16-
<PAGE>
presented. Trade names and goodwill amortization as a percentage of
net sales in the third quarter of 1998 was comparable to the third
quarter of 1997.
Operating income in the third quarter of 1998 was 18.9% of net sales
or $181.2 million versus 17.5% or $162.3 million in the comparable
quarter of 1997. The increase in operating margins was primarily due
to an increase in margins at several of the Company's core businesses.
These increases were offset partially by the 1997 and 1998
acquisitions, whose operating margins are improving as they are being
integrated, but are still operating at less than the Company's average
operating margins.
Net non-operating income in the third quarter of 1998 was 1.4% of net
sales or $12.9 million versus net non-operating expenses of 1.9% of
net sales or $17.9 million in the comparable quarter of 1997. The
$30.8 million difference was due primarily to a $36.8 pre-tax gain on
the divestitures of the Stuart Hall and Newell Plastics businesses,
offset partially by distributions of $6.6 million related to the
convertible preferred securities that were issued by a subsidiary
trust in December 1997.
For the three months ending September 30, 1998 and 1997, the effective
tax rate was 48.9% and 39.6%, respectively. The rate increase was the
result of goodwill related to the sale of the two businesses which was
non-deductible; excluding this item, the overall tax rate was 38.1%
for the third quarter of 1998.
Net income for the third quarter of 1998 was $99.2 million,
representing an increase of $11.9 million or 13.6% from the comparable
quarter of 1997. Basic earnings per share increased 13.0% to $0.61 in
the third quarter of 1998 versus $0.54 in the third quarter of 1997.
Diluted earnings per share increased 11.1% to $0.60 vs. $0.54 in the
third quarter of 1997. The increases in net income and earnings per
share were primarily due to strong shipments at the Company's core
Hardware and Home Furnishings businesses.
-17-
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 VS. NINE MONTHS ENDED SEPTEMBER
30, 1997
Net sales for the first nine months of 1998 were $2,650.3 million,
representing an increase of $255.3 million or 10.7% from $2,395.0
million in the comparable period of 1997. The overall increase in net
sales was primarily attributable to contributions from the 1997
acquisitions of Rolodex, Kirsch and Eldon, the 1998 acquisitions of
Swish and Panex and internal growth of 4% due to strong shipments at
the Company's Office Products (primarily Sanford writing instruments)
and Hardware and Home Furnishings businesses (primarily
Intercraft/Burnes picture frames and Levolor and Newell window
treatments). These results were offset partially by the impact of the
divestitures of the Stuart Hall and Newell Plastics businesses. Net
sales for each of the Company's product groups (and the primary
reasons for the increase or decrease) were as follows, in millions:
1998 1997* % change
--------- --------- --------
Hardware & Home $ 1,243.1 $ 1,045.8 18.9% (a)
Furnishings
Office Products 767.6 684.4 12.2% (b)
Housewares 639.6 664.8 (3.8)% (c)
--------- ---------
$ 2,650.3 $ 2,395.0 10.7%
========= =========
(a) Internal growth of 6% plus the Kirsch and Swish acquisitions.
(b) Internal growth of 7% plus the Rolodex and Eldon acquisition, less
the impact from the Stuart Hall divestiture.
(c) Internal sales declines of 6% plus the Panex acquisition, less the
impact of the Newell Plastics divestiture.
*Restated for the merger with Calphalon Corporation on May 7, 1998, which
was accounted for as a pooling of interests.
Gross income as a percentage of net sales in the first nine months of
1998 was 32.6% or $863.6 million versus 31.9% or $763.8 million in the
comparable period of 1997. Gross margins at several of the Company's
core businesses improved while the 1997 and 1998 acquisitions had
gross margins which were slightly lower than the Company's average
gross margins. As these acquisitions are integrated, the Company
expects their gross margins to continue to improve.
SG&A in the first nine months of 1998 were 15.3% of net sales or
$404.9 million versus 15.2% or $365.1 million in the comparable period
of 1997.
The Company has reclassified trade names and goodwill amortization
from non-operating expenses to operating expenses for all periods
-18-
<PAGE>
presented. Trade names and goodwill amortization as a percentage of
net sales in the first nine months of 1998 was 1.1% versus 1.0% in the
first nine months of 1997, excluding one-time charges (which included
write-offs of intangible assets) of $11.4 million recorded in the
first quarter of 1998.
Operating income in the first nine months of 1998 was 15.8% of net
sales or $418.2 million versus 15.7% or $375.8 million in the
comparable period of 1997. Excluding the one-time charges of $11.4
million, operating income in the first nine months of 1998 was $429.6
million or 16.2% of net sales. The increase in operating margins in
the first nine months of 1998, excluding the one-time charges, was
primarily due to an increase in margins at several of the Company's
core businesses. These increases were offset partially by the 1997 and
1998 acquisitions, whose operating margins are improving as they are
being integrated, but are still operating at less than the Company's
average operating margins.
Net non-operating income in the first nine months of 1998 was 6.4% of
net sales or $169.3 million versus net non-operating expenses of 1.7%
of net sales or $41.5 million in the comparable period of 1997. The
$210.8 million increase in income was primarily due to a one-time net
pre-tax gain of $191.5 million on the sale of the Company's stake in The
Black & Decker Corporation and a one-time pre-tax gain of $36.8 million on
the sale of Stuart Hall and Newell Plastics. This gain was offset partially
by distributions of $20.0 million related to the convertible preferred
securities issued by a subsidiary trust in December 1997.
For the first nine months of 1998 and 1997, the effective tax rate was
42.7% and 39.6%, respectively. The rate increase was the result of
goodwill related to the sale of the two businesses which was non-
deductible; excluding this item, the overall tax rate was 39.0% for
the first nine months of 1998.
Net income for the first nine months of 1998 was $336.8 million,
representing an increase of $134.9 million or 66.8% from the
comparable period of 1997. Basic earnings per share increased 65.6% to
$2.07 in the first nine months of 1998 versus $1.25 in the first nine
months of 1997. Diluted earnings per share increased 62.9% to $2.02
versus $1.24 in the first nine months of 1997. Excluding the one-time
net gain on the sale of Black & Decker stock of $191.5 million ($116.8
million after taxes) and one-time charges of $11.4 million ($6.9
million after taxes), net income increased $25.0 million or 12.4% to
$226.9 million in the first nine months of 1998 versus $201.9 million
in the first nine months of 1997. Diluted earnings per share,
excluding the one-time items, increased 11.3% to $1.38 versus
$1.24 in the first nine months of 1997. The increases in net income
and earnings per share were primarily due to strong shipments at the
Company's core Office Products and Hardware and Home Furnishings
businesses.
-19-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
SOURCES:
The Company's primary sources of liquidity and capital resources
include cash provided from operations and use of available borrowing
facilities.
Cash provided by operating activities in the first nine months of 1998
was $116.2 million, representing a decrease of $80.5 million from cash
provided by operating activities of $196.7 million for the comparable
period of 1997. The decrease was primarily due to $74.7 million of taxes
paid on the $191.5 million net gain on the sale of Black & Decker common
stock sold in the first quarter of 1998.
On March 3, 1998, the Company received $378.3 million from the sale of
7,862,300 shares of Black & Decker common stock. The proceeds from
the sale were used to pay down commercial paper.
In the third quarter of 1998, the Company received $199.0 million from
the sale of Stuart Hall and Newell Plastics.
The Company has short-term foreign and domestic uncommitted lines of
credit with various banks which are available for short-term
financing. Borrowings under the Company's uncommitted lines of credit
are subject to the discretion of the lender. The Company's uncommitted
lines of credit do not have a material impact on the Company's
liquidity. Borrowings under the Company's uncommitted lines of credit
at September 30, 1998 totaled $37.2 million.
During 1997, the Company amended its revolving credit agreement to
increase the aggregate borrowing limit to $1.3 billion, at a floating
interest rate. The revolving credit agreement will terminate in August
2002. At September 30, 1998, there were no borrowings under the
revolving credit agreement.
In lieu of borrowings under the Company's revolving credit agreement,
the Company may issue up to $1.3 billion of commercial paper. The
Company's revolving credit agreement provides the committed backup
liquidity required to issue commercial paper. Accordingly, commercial
paper may only be issued up to the amount available for borrowing
under the Company's revolving credit agreement. At September 30, 1998,
$197.0 million (principal amount) of commercial paper was outstanding.
The entire amount is classified as long-term debt.
The Company filed a universal shelf registration statement in 1996 under
which the Company could issue up to $500 million of debt and equity
securities from time to time. At September 30, 1998, the Company had
issued an aggregate of $425 million (principal amount) of medium-term
notes under this registration statement (all of which was issued in the
third quarter of 1998). Combined with issuances under an earlier shelf
registration statement, an aggregate of $688 (principal amount) of
-20-
<PAGE>
medium-term notes of the Company were outstanding at September
30, 1998 with maturities ranging from five to ten years at an average
annual rate of interest equal to 6.1%.
Uses:
The Company's primary uses of liquidity and capital resources include
acquisitions, dividend payments and capital expenditures.
Cash used in acquiring businesses was $419.7 million and $695.4
million in the first nine months of 1998 and 1997, respectively. In
the first nine months of 1998, the Company acquired Swish, Panex,
Gardinia and Rotring and made other minor acquisitions for cash
purchase prices totaling $418.5 million. In the first nine months of
1997, the Company acquired Rolodex, Kirsch, Eldon and other minor
acquisitions for cash purchase prices totaling $762.1 million. All of
these acquisitions were accounted for as purchases and were paid for
with proceeds obtained from the issuance of commercial paper.
Capital expenditures were $106.3 million and $52.3 million in the
first nine months of 1998 and 1997, respectively. The increase in 1998 was
primarily due to the replacement of glass manufacturing tanks at Newell
Europe and the Anchor Hocking Glass divisions.
The Company has paid regular cash dividends on its common stock since
1947. On February 10, 1998, the quarterly cash dividend was increased
to $0.18 per share from the $0.16 per share that had been paid since
February 11, 1997. Prior to this date, the quarterly cash dividend
paid was $0.14 per share since February 6, 1996, which was an increase
from the $0.12 per share paid since May 11, 1995. Aggregate dividends
paid during the first nine months of 1998 and 1997 were $87.2 million
and $76.3 million, respectively.
Retained earnings increased in the first nine months of 1998 and 1997
by $248.5 million and $127.7 million respectively. The higher increase
in 1998 versus the increase in 1997 was primarily due to a net pre-tax
gain of $191.5 million ($116.8 million after taxes) on the sale of the
Black & Decker common stock.
Working capital at September 30, 1998 was $705.7 million compared to
$719.2 million at December 31, 1997. The current ratio at September
30, 1998 was 1.66:1 compared to 2.01:1 at December 31, 1997.
Total debt to total capitalization (total debt is net of cash and cash
equivalents, and total capitalization includes total debt, convertible
preferred securities and stockholders' equity) was .28:1 at September
30, 1998 and .27:1 at December 31, 1997.
The Company believes that cash provided from operations and available
borrowing facilities will continue to provide adequate support for the
cash needs of existing businesses; however, certain events, such as
significant acquisitions, could require additional external financing.
-21-
<PAGE>
MARKET RISK
-----------
The Company's market risk is impacted by changes in interest rates,
foreign currency exchange rates, and certain commodity prices.
Pursuant to the Company's policies, natural hedging techniques and
derivative financial instruments may be utilized to reduce the impact
of adverse changes in market prices. The Company does not hold or
issue derivative instruments for trading purposes, and has no material
sensitivity to changes in market rates and prices on its derivative
financial instrument positions.
The Company's primary market risk is interest rate exposure, primarily
in the United States. The Company manages interest rate exposure
through its conservative debt ratio target and its mix of fixed and
floating rate debt. Interest rate exposure was reduced significantly
in 1997 by the issuance of $500 million 5.25% Company-Obligated
Mandatorily Redeemable Convertible Preferred Securities of a
Subsidiary Trust, the proceeds of which reduced commercial paper.
Interest rate swaps may be used to adjust interest rate exposures when
appropriate based on market conditions, and, for qualifying hedges,
the interest differential of swaps is included in interest expense.
The Company's foreign exchange risk management policy emphasizes
hedging anticipated intercompany and third-party commercial
transaction exposures of one year duration or less. The Company
focuses on natural hedging techniques of the following form: 1)
offsetting or netting of like foreign currency flows, 2) structuring
foreign subsidiary balance sheets with appropriate levels of debt to
reduce subsidiary net investments and subsidiary cash flows subject to
conversion risk, 3) converting excess foreign currency deposits into
U.S. dollars or the relevant functional currency and 4) avoidance of
risk by denominating contracts in the appropriate functional currency.
In addition, the Company utilizes forward contracts and purchased
options to hedge commercial and intercompany transactions. Gains and
losses related to qualifying hedges of commercial transactions are
deferred and included in the basis of the underlying transactions.
Derivatives used to hedge intercompany transactions are marked to
market with the corresponding gains or losses included in the
consolidated statements of income.
Due to the diversity of its product lines, the Company does not have
material sensitivity to any one commodity. The Company manages
commodity price exposures primarily through the duration and terms of
its vendor contracts. Based on the Company's overall interest rate,
currency rate and commodity price exposures at September 30, 1998,
management of the Company believes that a short-term change in any of
these exposures will not have a material effect on the consolidated
financial statements of the Company.
-22-
<PAGE>
YEAR 2000 COMPUTER COMPLIANCE
-----------------------------
State of Readiness
In order to address Year 2000 compliance, the Company has initiated a
comprehensive project designed to minimize or eliminate any business
disruption associated with potential date processing problems in its
information technology ("IT") systems, as well as its non-IT systems
(e.g., HVAC systems, building security systems, etc.). The project
consists of six phases: company recognition, inventory of systems,
impact analysis, planning, fixing and testing. The Company has
completed the first four phases for both IT and non-IT systems and is
actively engaged in completing the fifth and sixth phases.
With respect to U.S. IT, approximately 85 percent of the Company's
critical business systems are currently compliant and approximately 15
percent are in the process of being renovated. With respect to U.S.
non-IT systems, the assessment phase indicated a need for only minor
renovation work. For both U.S. IT and non-IT systems, the fixing and
testing phases currently underway are expected to be completed by
year-end 1998.
With respect to International IT systems, approximately 60 percent of
the Company's critical business systems are currently compliant and
approximately 40 percent are in the process of being renovated. With
respect to International non-IT systems, the assessment phase
indicated a need for only minor renovation work. For both
International IT and non-IT systems, the fixing and testing phases
currently underway are expected to be completed by June 1999.
As part of its Year 2000 project, the Company has initiated
communications with all of its vendors, services suppliers and major
customers to assess their state of Year 2000 readiness. A large percentage
of its vendors have responded in writing to the Company's Year 2000
readiness inquiries that they will be Year 2000 compliant by year end 1999.
The Company plans to continue assessment of its third party business
partners, including face-to-face meetings with management and/or onsite
visits as deemed appropriate. Despite the Company's efforts, there can be
no guarantee that the systems of other companies which the Company relies
upon to conduct its day-to-day business will be compliant.
COSTS
The Company estimates that it will incur expenses of $14 to $16
million in conjunction with the Year 2000 compliance project. As of
September 30, 1998, the Company has spent $12 million in conjunction
with this project. The majority of these expenditures were capitalized
since they were associated with software that would have been replaced
in the normal course of business.
-23-
<PAGE>
RISKS
With respect to the risks associated with its IT and non-IT systems,
the Company believes that the most likely worst case scenario is that
the Company may experience minor system malfunctions and errors in the
early days and weeks of the Year 2000 that were not detected during
its renovation and testing efforts. The Company also believes that
these problems will not have a material effect on the Company's
financial condition or results of operations.
With respect to the risks associated with third parties, the Company
believes that the most likely worst case scenario is that some of the
Company's vendors will not be compliant and will have difficulty
filling orders and flowing goods. Management also believes that the
number of such vendors will have been minimized by the Company's
program of identifying non-compliant vendors and replacing or jointly
developing alternative supply or delivery solutions prior to the Year
2000.
The Company has limited the scope of its risk assessment to those
factors which it can reasonably be expected to have an influence upon.
For example, the Company has made the assumption that government
agencies, utility companies, and national telecommunications providers
will continue to operate. Obviously, the lack of such services could
have a material effect on the Company's ability to operate, but the
Company has little if any ability to influence such an outcome, or to
reasonably make alternative arrangements in advance for such services
in the event they are unavailable.
CONTINGENCY PLANS
The Company has not yet completed its planning and preparations to
handle the most likely worst case scenarios described above. The
Company intends to develop contingency plans for these scenarios by
December 31, 1998.
FORWARD LOOKING STATEMENTS
--------------------------
Forward-looking statements in this Report are made in reliance upon
the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements may relate to, but are
not limited to, such matters as sales, income, expenses, margins,
earnings per share, return on equity, capital expenditures, dividends,
capital structure, free cash flow, debt to capitalization ratios,
internal growth rates, the Year 2000 plan and related risks, future
economic performance, management's plans, goals and objectives for
future operations and growth or the assumptions relating to any of the
forward-looking information. The Company cautions that forward-looking
statements are not guarantees since there are inherent difficulties in
predicting future results, and that actual results could differ
materially from those expressed or implied in the forward-looking
-24-
<PAGE>
statements. Factors that could cause actual results to differ include,
but are not limited to, those matters set forth in the Company's 1997
Annual Report on Form 10-K, as amended, the documents incorporated by
reference therein and in Exhibit 99 to this Form 10-Q.
-25-
<PAGE>
PART I.
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated herein by
reference to the section entitled "Market Risk" in the Company's
Management's Discussion and Analysis of Results of Operations and
Financial Condition (Part I, Item 2).
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As of September 30, 1998, the Company was involved in 33 matters
concerning federal and state environmental laws and regulations,
including matters in which it had been identified by the U.S.
Environmental Protection Agency and certain state environmental
agencies as a potentially responsible party ("PRP") for contaminated
sites under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") and equivalent state laws. In assessing its
environmental response costs, the Company has considered several
factors, including, the extent of the Company's volumetric
contribution at each CERCLA site relative to that of other PRPs: the
kind of waste; where applicable, the terms of existing cost sharing
and other agreements; the financial ability of other PRPs to share in
the payment of requisite costs; the Company's prior experience with
similar sites; environmental studies and cost estimates available to
the Company; the effects of inflation on cost estimates; and the
extent to which the Company's and other parties' status as PRPs is
disputed. Based on information available to it, the Company's estimate
of environmental response costs associated with these matters as of
September 30, 1998 ranged between $18.3 million and $23.4 million. As
of September 30, 1998, the Company had a reserve equal to $20.3
million for such environmental costs in aggregate. No insurance
recovery was taken into account in determining the Company's cost
estimates or reserve, nor do the Company's cost estimates or reserve
reflect any discounting for present value purposes. Because of the
uncertainties associated with environmental investigations and
response activities, the possibility that the Company could be
identified as a PRP at sites identified in the future that require the
incurrence of environmental response costs, and the possibility of
additional sites as a result of businesses acquired, actual costs to
be incurred by the Company may vary from the Company's estimates.
Subject to difficulties in estimating future environmental costs, the
Company does not expect that any sum it may have to pay in connection
with environmental matters in excess of amounts reserved will have a
material adverse effect on its consolidated financial statements.
-26-
<PAGE>
Reference is made to the disclosure of several legal proceedings
relating to the importation and distribution of vinyl mini-blinds made
with plastic containing lead stabilizers in Note 15 to the
consolidated financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997. With respect
to the civil suit filed by the California Attorney General and the
Alameda County District Attorney against numerous defendants,
including a subsidiary of the Company (which was coordinated with the
case filed in Sacramento County Superior Court as a national and
California private class action in 1996), on June 22, 1998, the Court
entered a Stipulated Consent Judgment resolving the Attorney
General's case as to the Company's subsidiary and most of the
defendants. On July 27, 1998, the coordination trial judge ruled that
this Consent Judgment barred the California claims of the private
class action plaintiffs, and on October 6, 1998, judgment was entered
for the Company's subsidiary and 22 of the other defendants in the
private class action. The private class action plaintiffs are
appealing both the Consent Judgment and the Judgment entered in their
action and applying for attorneys' fees for their efforts at the trial
court level. The Company's contribution to the judgment amount was not
material to the Company's consolidated financial statements. Other
related litigation described in Note 15 remains pending. Although
management of the Company cannot predict the ultimate outcome of these
matters with certainty, it believes that their ultimate resolution
will not have a material effect on the Company's consolidated
financial statements.
-27-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11. Computation of Earnings per Share of Common Stock
12. Statement of Computation of Ratio of Earnings to Fixed
Charges
21. Subsidiaries of the Registrant: Significant Subsidiaries of
the Registrant
27. Financial Data Schedule
99. Additional Exhibits: Safe Harbor Statement
(b) Reports on Form 8-K:
Registrant filed a Report on Form 8-K dated July 9, 1998,
reporting the Registrant entered into a Terms Agreement in
connection with a public offering of a series of Medium-Term
Notes under Registrant's Shelf Registration Statement on Form S-3
(Registration No. 33-64225).
Registrant filed a Report on Form 8-K dated August 6, 1998,
reporting that the Company will update its share purchase rights
plan effective October 31, 1998 and filing the new Rights
Agreement between the Company and First Chicago Trust Company of
New York.
Registrant filed a Report on Form 8-K dated October 21, 1998,
reporting the merger agreement between Registrant and Rubbermaid
Incorporated.
-28-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
NEWELL CO.
Registrant
Date: November 10, 1998 /s/ William T. Alldredge
--------------------------------
William T. Alldredge
Vice President - Finance
Date: November 10, 1998 /s/ Brett E. Gries
--------------------------------
Brett E. Gries
Vice President - Accounting & Tax
-29-
EXHIBIT 11
NEWELL CO. AND SUBSIDIARIES
COMPUTATION OF EARNINGS
PER SHARE OF COMMON STOCK
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- -------------------------------
1998 1997* 1998 1997*
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Basic Earnings per Share:
Net Income $ 99,166 $ 87,257 $ 336,806 $ 201,915
Weighted avg. shares outstanding 162,623 162,206 162,501 162,141
Basic Earnings per Share $ 0.61 $ 0.54 $ 2.07 $ 1.25
Diluted Earnings per Share:
Net Income $ 99,166 $ 87,257 $ 336,806 $ 201,915
Minority interest in income of
Subsidiary trust, net of tax 4,035 12,070
-------------- --------------- -------------- --------------
Net Income, assuming conversion
of all applicable securities $ 103,201 $ 87,257 $ 348,876 $ 201,915
Weighted avg. shares outstanding 162,623 162,206 162,501 162,141
Incremental common shares
applicable to common stock
options based on the market
price during the period 807 640 686 640
Average common shares issuable
assuming conversion of the
Company-Obligated
Mandatorily Redeemable
Convertible Preferred Securities
of a Subsidiary Trust 9,865 9,865
-------------- --------------- -------------- --------------
Weighted avg. shares outstanding
assuming full dilution 173,295 162,846 173,052 162,781
Diluted Earnings per Share,
assuming conversion of all
applicable securities $ 0.60 $ 0.54 $ 2.02 $ 1.24
* Restated for the merger with Calphalon Corporation on May 7, 1998,
which was accounted for as a pooling of interests.
-30-
</TABLE>
EXHIBIT 12
NEWELL CO. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES
(In thousands, except ratio data)
<TABLE>
<CAPTION>
For the Year Ended
Year-to-date December 31,
September 30, ----------------------------
1998 1997* 1996*
-------------- ------------ ------------
<S> <C> <C> <C>
Earnings available to fixed charges:
Income before income taxes $ 407,431 (1) $ 485,334 $ 434,378
Fixed charges -
Interest expense 43,966 76,413 58,541
Portion of rent determined
to be interest (2) 13,740 16,963 15,185
Minority interest in
income of subsidiary trust 19,984 1,528 -
Eliminate equity in
earnings (5,527) (5,831) (6,364)
-------------- ------------ -----------
$ 479,594 $ 574,407 $ 501,740
============== ============ ===========
Fixed charges:
Interest expense $ 43,966 $ 76,413 $ 58,541
Portion of rent determined
to be interest (2) 13,740 16,963 15,185
Minority interest in
income of subsidiary trust 19,984 1,528 -
-------------- ------------ ------------
$ 77,690 $ 94,904 $ 73,726
============== ============ ============
Ratio of earnings to fixed charges 6.17 6.05 6.81
============== ============ ============
* Restated for the merger with Calphalon Corporation on May 7, 1998,
which was accounted for as a pooling of interests.
(1) Excludes one-time net pre-tax gain of $191,513 from the sale of
Black & Decker stock, offset partially by $11,398 of one-time pre-tax
charges.
(2) A standard ratio of 33% was applied to gross rent expense to
approximate the interest portion of short-term and long-term leases.
-31-
</TABLE>
EXHIBIT 21
SIGNIFICANT SUBSIDIARIES OF THE REGISTRANT
Intercraft Company
Newell Operating Company
Sanford L.P.
-32-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from the Newell Co.
and Subsidiaries Consolidated Balance
Sheets and Statements of Income and is
qualified in its entirety by reference to
such financial statements.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 34,280
<SECURITIES> 8,163
<RECEIVABLES> 670,193
<ALLOWANCES> (21,074) <F1>
<INVENTORY> 776,093
<CURRENT-ASSETS> 1,767,370
<PP&E> 1,340,035 <F2>
<DEPRECIATION> (505,549) <F2>
<TOTAL-ASSETS> 4,603,718
<CURRENT-LIABILITIES> 1,061,675
<BONDS> 912,650
500,000
0
<COMMON> 162,634
<OTHER-SE> 1,722,897
<TOTAL-LIABILITY-AND-EQUITY> 4,603,718
<SALES> 2,650,263
<TOTAL-REVENUES> 863,623
<CGS> 1,722,897
<TOTAL-COSTS> 2,232,024
<OTHER-EXPENSES> (169,307)
<LOSS-PROVISION> 3,528 <F1>
<INTEREST-EXPENSE> 43,966
<INCOME-PRETAX> 587,546
<INCOME-TAX> 250,740
<INCOME-CONTINUING> 336,806
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 336,806
<EPS-PRIMARY> 2.07
<PAGE>
<EPS-DILUTED> 2.02
<FN> <F1>
Allowances for doubtful accounts are
reported as contra accounts to accounts
receivable. The corporate reserve for bad
debts is a percentage of trade receivables
based on the bad debts experienced in one
or more past years, general economic
conditions, the age of the receivables and
other factors that indicate the element of
uncollectibility in the receivables
outstanding at the end of the period.
<F2>
See note 5 to consolidated financial
statements.
EXHIBIT 99
NEWELL SAFE HARBOR STATEMENT
----------------------------
Information provided by the Company, including certain of the
matters described in this Quarterly Report on Form 10-Q (the "Third
Quarter 10-Q")and the documents incorporated by reference therein, may
constitute forward-looking statements, as defined by the Private
Securities Litigation Reform Act of 1995. Such forward-looking
statements may relate to, but are not limited to, information or
assumptions about the Company's sales, income, earnings per share,
return on equity, capital expenditures, dividends, capital structure,
free cash flow, debt to capitalization ratios, interest rates,
internal growth rates, the Year 2000 plan and related risks, pending
legal proceedings and claims (including environmental matters), future
economic performance, management's plans, goals and objectives for
future operations and growth, and the assumptions relating to any of
the forward-looking information. Such forward-looking statements
generally are accompanied by words such as "intend," "anticipate,"
"believe," "estimate," "project," "expect," "should" or similar
expressions. The Company cautions that forward-looking statements are
not guarantees since there are inherent difficulties in predicting
future results. Actual results could differ materially from those
expressed or implied in the forward-looking statements. Factors that
could cause actual results to differ include, but are not necessarily
limited to, those discussed below and in the matters set forth
generally in the Third Quarter 10-Q and the documents incorporated by
reference therein. In addition, there can be no assurance that (i) the
Company has correctly identified and assessed all of the factors
affecting the Company's businesses; (ii) the publicly available and
other information with respect to these factors on which the Company
has based its analysis is complete or correct; (iii) the Company's
analysis is correct; or (iv) the Company's strategies which are based
in part on this analysis, will be successful.
Retail Economy
--------------
The Company's businesses depend on the strength of the retail
economies in various parts of the world, primarily in the U.S. and to
a lesser extent in Asia (including Australia and New Zealand), Canada,
Europe (including the Middle East and Africa) and Latin America
(including Mexico and Central America). These retail economies are
affected by such factors as consumer demand, the conditions of the
consumer products retail industry, weather conditions and the cost of
raw materials (which may not be recovered through selling prices). In
recent years, the consumer products retail industry has been
characterized by intense competition and consolidation among both
product suppliers and retailers.
<PAGE>
Nature of the Marketplace
-------------------------
The Company competes with numerous other manufacturers and
distributors of consumer products, many of which are large and well-
established. In addition, the Company's principal customers are
volume purchasers, many of which are much larger than the Company and
have strong bargaining power with suppliers. The rapid growth of
large mass merchandisers, such as discount stores, warehouse clubs,
home centers and office superstores, together with changes in consumer
shopping patterns, have contributed to a significant consolidation of
the consumer products retail industry and the formulation of dominant
multi-category retailers. Other trends among retailers are to require
manufacturers to maintain or reduce product prices or deliver products
with shorter lead times, or for the retailer to import generic
products directly from foreign sources. The combination of these
market influences has created an intensely competitive environment in
which the Company's principal customers continuously evaluate which
product suppliers to use, resulting in pricing pressures and the need
for ongoing improvements in customer service.
Growth by Acquisition
---------------------
The acquisition of companies that sell branded, staple consumer
product lines to volume purchasers is one of the foundations of the
Company's growth strategy. The Company's ability to continue to make
sufficient strategic acquisitions at reasonable prices and to
integrate the acquired businesses with a reasonable period of time are
important factors in the Company's future earnings growth.
Foreign Operations
------------------
Foreign operations, which include manufacturing in Canada,
Mexico, Brazil, Columbia, Venezuela and many countries in Europe, and
importing products from the Far East, increasingly are becoming
important to the Company's businesses. Foreign operations can be
affected by factors such as currency devaluation and other currency
fluctuations, tariffs, nationalization, exchange controls, limitations
on foreign investment in local businesses and other political,
economic, regulatory risks.
